Credit Spreads Aren't Hiding a Market Timebomb
Deteriorating government finances are justifiably boosting demand for corporate debt.
Corporate credit spreads are tight, but aren’t about to blow up.
Photograph: Hulton Archive/Getty Images
A glance at the paltry yield premium that corporate debt offers over so-called risk-free government bonds may suggest there’s too little reward available for taking on the credit risk of a company versus a sovereign’s borrowings. But spreads are compressing for good — and sustainable — reasons.
The corporate world overall is in rude health, with robust profit growth and an improving creditworthiness outlook. That’s in direct contrast with government finances, which face increasingly stretched budget deficits. US Treasuries, previously the unimpeachable global market lodestar, are looking decidedly tarnished, and there’s a similarly gloomy picture across most of the developed world’s government debt assets.